Stemming the Outflow

The steady outflow of U.S. gold, one of the Government's biggest problems, last week seemed to be solving itself--at least temporarily. The price of gold on the London market fell to $35.20, lowest since last October's gold crisis. At that price, European central banks can buy gold on the free market (rules of the International Monetary Fund prevent their paying more than $35.35), thus do not have to get gold by drawing on their U.S. gold credits. The price drop not only dampened speculation but cut U.S. gold losses.

Last week the U.S. gold outflow was only $9,000,000, the smallest one-week change since last August.

The price drop was caused chiefly by President Kennedy's pledge not to devalue the dollar and to make full use of the U.S. gold supply to back it. Added to this was discreet British buying of gold from the U.S. to increase the market supply and drive down prices (with tacit U.S. approval) and a belief among Europeans that the U.S. recession may not be long or hard, will not call for a drastic easing of credit or a sizable drop in interest rates. In 1960's fourth quarter, the stepped-up flow abroad of short-term capital in search of higher interest rates helped run 1960's balance-of -payments deficit up to $3.8 billion v. the $3.2 billion predicted.

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